How does that help?
I don’t normally do requests but I was asked an interesting question yesterday: Why does the Bank of England think that higher interest rates will help in the current situation?
The answer is, of course, that it doesn’t, at least not in the short term.
In a boom the Bank likes to boast that its job is to take away the punch bowl just as the party is getting interesting, raising the cost of borrowing stops prices rising when economic activity is too vibrant.
But this time it is trying to cut inflation when the country is heading for a recession. It is taking even more money out of people’s wallets, just as soaring energy prices are making them poorer, in order to force companies to keep prices down if they want to sell their products.
Less money in the economy means there is less opportunity to charge more.
It is crude, painful and slow working, it will only help to bring down some inflation, we will have to wait for international energy prices to fall to cut it further.
But the Bank of England is trying to inflict pain in the short term to limit price rises and gain in the long term.
This looks and feels not so much like taking away the punch bowl, as denying water to a man dying of thirst. But raising interest rates is one of the very few tools the Bank has and it is using it now to try to bring down price rises.
If for millions of people it looks and feels like the Bank is making things worse not better, that’s because it is.
Pain now should mean lower inflation and higher growth later but it will be a long time before any of us get to drink from the punch bowl again.
Economics, trade and Brexit, not necessarily in that order but the dog always comes first.